Valleywag
Here's a new Facebook revenue estimate to think about: $90 million a year — from sponsorships alone. Sure, I've poked fun at Facebook's fanciful figures. The social network's board members, after all, can't get their stories straight on how much the company is making — so why should we trust their wild-eyed, multibillion-dollar valuations for the company, either? But now it gets real, folks. An informant has forwarded me a Facebook rate card — a rate card the company claims doesn't exist. It's dated February, so keep that in mind. And any rate card, of course, is a salesman's fantasy numbers, not the real ones that get hammered out in a sharp-elbowed deal. But the contents of the card square with what I've heard from insiders. After the jump, what it takes to buy your way onto Facebook.
At first, Facebook spokesperson Brandee Barker says, "We don't have a rate card." When I informed her that the document I had was labeled "Rate Card / Snapshot of Integrated Opportunities," she backtracked and said, "I just don't think it's a rate card in the traditional sense." Of course. Only in the sense that it lists advertising rates.
Even Facebook admits its banner ads aren't particularly effective. The "Homepage Sponsored Story" gets a click-through rate "10-20x higher than banners." That would put it at a respectable range of 0.4 to 0.8 percent.
Those sponsored stories will cost you, though, at a CPM, or cost per thousand, of $10, and a minimum spend of $50,000. Targeting costs $2 to $5 extra in CPM.
Got more to spend? Go for a "Facebook Sponsored Group." There are currently 150 of these groups, and some have hundreds of thousands of Facebook users as members.
The rate card says that sponsored groups require a $150,000 expenditure for three months. Annualize that and you've got a run rate of $90 million a year — but that, of course, doesn't account for any discounts or package deals.
Victoria's Secret and Dave Matthews Band are listed as sponsored groups here, in this February-dated rate card, and still have active groups. That means that they've been spending steadily on Facebook for at least five months.
Apple, eBay, MTV, and Red Bull are just some of Facebook's sponsors.
So what to conclude from this? Banner ads, clearly, don't count for much on Facebook; even Facebook admits as much to advertisers, which is why the company has pawned off its banner-ad inventory to Microsoft. (Microsoft, like a sucker, took the deal, which goes to the credit of Facebook's shark-like dealmarkers.)
The real advertising money is in sponsorships. Valley insiders knew that all along; they just didn't know how much until now. Do the math, and at Facebook's current sponsor count, just the $150,000 minimum spend could reach $90 million a year.
The main question, though, is how much its sponsorship business can grow without offending users. Only one sponsored story can show up at a time on a user's homepage, which limits inventory. And with Facebook apps now vying for users' attention, will sponsored groups still spread as quickly from user to user?
Sheer novelty, too, may account for the sponsored stories' high click-through rates. Online banner ads had high click-throughs in the mid-'90s when they were first introduced; then Web surfers wearied of them. Who's to say the same thing won't happen to ads in Facebook's newsfeed?
I say all that as a caution to starry-eyed Facebook evangelists, of course. Facebook would be foolish not to exploit its users as long as it can. But counting on a high click-through rate forever would be equally foolish. And pushing its sponsorship business more Facebook is doing today could just hasten that rate's decline.
For your enjoyment, here's the complete seven-card PowerPoint deck as a photogallery:
Comments
"It's OK to lie about having a rate card. Even though were spreading them around like confetti at Mardi Gras there's no way anyone will say something. And if someone does catch on, it won't hurt the company's credibility because people will forget about it in an hour or so."
Classic.
At those rates, party likes it's 2002.
Nice job dude...this is very important.
(seriously)
Hmmm.
If they can sell 20% of their inventory of a billion or two pageviews a day at a $10 CPM, they're doing just fine.
The big deal here is that even with a *substantial* discount (which is likely), $10 CPM is pretty alright, even with a substantial distance from RPM/eCPM across the site. They really might be able to go public with those kind of numbers.
A+ great leaked material post...Nice!
Owen,
Really top shelf stuff. I'm seriously impressed with how Valleywag has gone from a titty-bar "who's sleeping with whom" to actual insider information in the Valley. Really great job.
Good work, hopefully no animals were harmed in the making of this post...
@Randall: Thanks, but you make that sound like an either-or proposition!
That Dave Matthews group has been around longer than 5 months. That screen shot is advertising a promotion for last year's tour -- check the blue title bar on top, it says '2006' (as in, they've been paying for a sponsored group for over a year).
Excellent post, top-notch stuff. This gives a real inside look into the world of online advertising, and the cutting-edge at that.
One thing though:
- Yahoo! became king of the world wide by mastering the art of selling display banners on CPM rates, in other words, by making pennies off each impression.
- Google overtook Yahoo! by mastering the art of selling text links on CPC rates, in other words, making tens of cents off each click.
History not only repeats itself, it also tends to provide a glimpse into where the spectrum will take us. If the latter is true, then Facebook needs to harness the power of CPA offers, connecting consumers and merchants to take a slice off leads, sales and introduction. If it does that, it will make a few dollars of each connection.
Fitting, since we've dubbed Facebook the Database of Connections…
But giving up the easy money of MSFT guaranteed deal and sponsorships might mean that Facebook will never really deliver on its promise.
[www.watchmojo.com]
Assuming the high end of your CTR range (0.8%), a $10 to $15 CPM range translates into a CPC range of $1.25 to $1.9 (depending on targeting) which seems very high compared with search engine marketing. And this is just to drive traffic to your sponsored group on Facebook, not your own website. So, if your assumptions are correct, I wonder to what extent this propensity to pay is sustainable?
Albeit, a different beast, we have paid CPMs as low as .28 on yahoo and .25 on myspace. Only idiots pay retail.
As usual, great story!
BTW, I could swear that about 8 years ago, I saw the identical slide deck that had the exact same business model but the shade of blue was a bit darker and it had that funny triangular looking logo in the corner...
BUt remember, facebook's virtual gifts business is in the 2-5 million range i think...not $20 mil like you said
There's an app for free virtual gifts..
shit owen... i think this could actually qualify as real-honest-to-goodness hard-nosed reporting.
(better get back to tips from drunkards, or someone might mistake ValleyWag articles for respectable journalism ;)
@dula: Interesting -- what do you base that figure on?
@Owen: So I guess I should have said "more than just a titty bar," because every now and then we need a little bit of titty, but I'll take advertising slide decks. Call me crazy, but decks just do it for me.
holy jeebus, you can get myspace CPMs for $0.05 if you do some big purchases. Yes, that's 5 cents or 200 times cheaper than facebook. And guess who's easier to market to... mostly scam avoiding, smarter college students, or the geniuses who play at myspace ;-).
I chooset so spend marketing $ at myspace. faecbook seems more like a branding opportunity.
Major brands like those listed do NOT pay rate card prices - not even remotely close to it. They typically make higher volume deals at much MUCH lower rates. In fact, sales people usually bend over backwards with massive incentives just to book a bigger brand. Even with smaller brands at lower, more-targeted levels we've booked deals for clients FAR below rate card prices. And the prices will only go lower if the site continues to grow. So even if there's more inventory (which will gradually perform weaker as people grow accustomed to the spots) the revenue will not grow at the same rate.
The CPA model has some potential, but I'm not sure the volume is there to scale like they'd hope. Google hit the motherload with the PPC search model (not by inventing it of course) which scales beautifully. The AdSense model was just gravy.
I still think if they try to carry this current business model forward into an IPO there's going to be a collective WTF moment once the revenues are put in the context of the broader market. ALL that hype . . . . for this? You mean this isn't Google 2.0?! Better to sell out to Google/Yahoo/Microsoft who can afford to eat the loss in exchange for gaining eyeballs and marketshare.
on that note, has any one forgot about the Facebook lawsuit?
[media.www.gwhatchet.com]
That Facebook rate card Valleywag published yesterday? It was from February. And, yes, February was eons ago, but who would have suspected that Facebook would have doubled its sponsorship rates in the meantime? Well, it seems they have. Valleywag's Owen Thomas reveals the June rate card.
A good bit of investigative journalism - something which is rare in the ad industry world. We've asked here to see if there is a UK rate card and will report back. Posted your link on our British ad community [www.mediastarz.co.uk] . I like ValleyWag.com loads we'll keep in touch.
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